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Case Study 3_Economics

Case Study 3_Economics

Q 1. Why is there unemployment even when the economy is at “full employment”? what are some “costs of unemployment”? 2. Is the CPI a biased measure of the inflation rate? Explain your answer.3. Explain how some government tax revenue and spending can depend on the state of the economy.4. Explain some limitations of using GDP as an indicator of standard of living.

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In many of the cases it is being found that there is existence of unemployment even when the economy is at full employment because of the presence of frictional and structural unemployment. The level of GDP also remains the high during this period where GDP is being defined as the level of output which can be produced by an economy if it would have operated at the level of full employment. Frictional unemployment is considered to be the level of unemployment which results from that of switching between jobs or which results when an individual starts searching for their first job. This kind of unemployment occurs on an transitional basis between that of jobs.